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Old 07-27-2018, 01:23 PM   #1
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"Business Yacht Ownership"

Looking at yachts this spring, we were told about a program called Business Yacht Ownership that purports to pay for a new boat using mainly taxes -paying off the boat as if it were a business. Does anyone have feedback on the idea? Too good to be true? The agent was saying that our boat could be chartered for sunset cruises with a captain aboard -that no one would even be using the beds. That'd be light carter duty!
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Old 07-27-2018, 01:35 PM   #2
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I view it as cheating.
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Old 07-27-2018, 01:38 PM   #3
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I view it as cheating.
But does the IRS? If not, give it a try........
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Old 07-27-2018, 02:31 PM   #4
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You are under a popular misconception: that taxes will pay off the boat in that situation. Not so.

You have to have enough income from chartering to cover slip, maintenance, fuel, the captain, insurance (a big bill because it has to be commercial insurance) and finally the monthly payment on the boat. That is a big nut and casual sunset cruises is not likely to do it.

The above equation has nothing to do with taxes. Taxes only come into play when income > expenses. In my experience the only way to pay off a boat is putting it in a full time charter program in an area where charters are prevalent: the PNW, BVI, etc. In that case the income will often cover expenses and loan payment and you can usually use it for free for a week or two each year.

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Old 07-27-2018, 02:48 PM   #5
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It would probably work if you were in a 100% or higher tax bracket.
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Old 07-27-2018, 02:51 PM   #6
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I would suggest asking the dealer to put it in writing and agree to cover any shortcoming each yr.
I bet I know what their response will be.
Yoy are correct... too good to be true

You didn't mention your location and what the tourist demand is for day cruises.
How do you spell marketing study and business plan???

Sorry for the cold water. ...
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Old 07-27-2018, 03:31 PM   #7
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It would probably work if you were in a 100% or higher tax bracket.

Unless income > expenses, it doesn't matter what tax bracket you are in.


I realize that you were probably trying to be funny. Unfortunately my business sense outweighs my sense of humor .


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Old 07-27-2018, 04:23 PM   #8
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Hmm it’s findable as a concept via google- Atlantic-cruising.com

Conceptually it might work, but I’d ask to see proof of returns from past and a vast quantity of actual cases
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Old 07-27-2018, 04:46 PM   #9
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A salesman lie about something? Or at the very least grossly mislead?

NO! Say it ain't so!

To have sufficient business to make it profitable there'd have to be someone or something driving the business. It ain't gonna magically charter itself. Those efforts will have costs. It all adds up. Will there be enough profit to make it "free"? That's rarely true, I'd daresay never.
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Old 07-27-2018, 05:36 PM   #10
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Ask your accountant. I would not want my boat being chartered. It would drive me nuts having someone else running my boat without me onboard. You better have really good insurance because one slip and fall and you could be in real trouble.
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Old 07-27-2018, 05:56 PM   #11
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Ask your accountant. I would not want my boat being chartered. It would drive me nuts having someone else running my boat without me onboard. You better have really good insurance because one slip and fall and you could be in real trouble.
Different ways to skin this, but I completely agree with you. Personally, I wouldn't do it.
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Old 07-27-2018, 08:14 PM   #12
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The business may be profitable enough to pay for the boat, but if the thought is that the business losses (presumably including depreciation, a non-cash expense, so you may be cash flow positive and still produce tax losses) will reduce your tax on other income enough to pay for the boat, you will have an uphill battle, which the IRS has fought and won many times. It's called "hobby loss". Your position will be much better if you NEVER use the boat for pleasure. Also popular among racing horse owners. Gamblers have tried with (almost) zero success.
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Old 07-27-2018, 09:24 PM   #13
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I looked at leasing our boat out to a Beach Wedding company for doing harbor cruises after the vows were taken, kind of an intimate start to the honeymoon. After talking to the guy who was holding the current contract, and learning about some of the conditions he had to clean up after the cruise, I decided against it. “Try cleaning that off the overhead hatch screen”, he says.
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Old 07-27-2018, 09:34 PM   #14
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Originally Posted by Dubnuh View Post
Looking at yachts this spring, we were told about a program called Business Yacht Ownership that purports to pay for a new boat using mainly taxes -paying off the boat as if it were a business. Does anyone have feedback on the idea? Too good to be true? The agent was saying that our boat could be chartered for sunset cruises with a captain aboard -that no one would even be using the beds. That'd be light carter duty!
Thanks
The agent was filling the airwaves with total bullsh.t trying to sell a fool (in his mind you were a potential fool, I'm not calling you a fool) on a concept that could lead to nothing but trouble.

A few boats are profitable as charter boats, but in general all it does is offset some costs. The idea you're going to pay for a new boat on tax savings is not feasible in any legal way. After you get your losses all rejected and reversed and your boat reclassified as a hobby, why don't you next try raising horses for your children to ride and writing them off.

Now, you may never get audited or checked, but let me assure you that if you are audited and are claiming a business loss on a boat, that will be checked and questioned. Nothing auditors like less than tax deductions on hobbies.

Oh, and as to his comments on support by CPA and CFP. Well, all the greatest tax shelter schemes have been promoted by CPA's and investment counselors. Most big accounting firms have been involved. Once one major client got audited and their savings reversed, they then went after every client invested in that program. When something is sold as a shelter, then ultimately it runs a tremendous risk. Keep in mind that the IRS always has one basic tax rule to pull out to disallow it. Any action that lacks a true business purpose and is simply a means to try to reduce taxes can be disallowed.

I noticed two testimonials on their website, both from one year owners. It's never the first year that gets you busted and costs you big time. It's when you report losses the first three years, that they'll decide it was not a business at all.

Clearly I strongly dislike such schemes as this and dislike the entire sales pitch based on your buying a boat and getting it somehow paid for by taxpayers. One question to ask all these charter operators who make such outlandish claims as this one. If it's so very profitable, why don't you own the boats?
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Old 07-27-2018, 09:41 PM   #15
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Thanks for the insights, BandB, I think you've nailed it/them.
-Dubnuh
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Old 07-27-2018, 10:06 PM   #16
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I'm "lazy" about calculating taxes (going through gyrations to minimize taxes). If I'm ever audited, I expect to get a refund.
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Old 07-27-2018, 10:45 PM   #17
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I think it can be legitimate, but you do have to create an LLC and actually use the boat as a commercial vessel generating income for the LLC. Seems geared towards people who get paid in large bonus/incentives each year. The commercial equipment acquisition can be deducted against that bonus check. Again, it has to be an actual commercial operation. Strangers will be using the vessel. Income and expense deductions cut into the cost of operation including any loans but would rarely cover or exceed. That's a big lie. Think of it this way: every year a new model gets introduced that renters will want to use instead of your aging vessel. After 3-5 years the vessel will get harder to rent out (or have to be offered at a lower rate). Couple this with increasing maintenance costs over time. Also, if you want to split personal/business use then you can only deduct the % of time the vessel is used for business.

However, I do view this as a scheme by sales guys who are obviously drumming up new ways to move product. Some builders are definitely on board and are potentially building boats for the sole purpose of fractional use. That's pretty scary actually, because they will have little regard (even less than they already do) for their products outside of the initial warranty. They may be building 3-5 year boats that disintegrate after the clock runs out.

Here's the final scam: taking your LLC property out of service and leaving it out for 3 years to avoid scrutiny when selling it. This more applies to real estate as boats are a depreciating asset anyway. Depreciating your real estate down over decades then keeping the profit from a later sale (real estate usually increases in value) is gaming the system.
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Old 07-28-2018, 06:39 AM   #18
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Unless income > expenses, it doesn't matter what tax bracket you are in.

David


Not true. If you have other income, like a W2 from a regular job, a properly setup boat business can run at a loss and those losses serve to reduce your taxes from the other income. People do this with airplanes as well. I won’t agree that it would ever pay for itself, but it can provide a great deal of help. It worked for me, and has for many others.
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Old 07-28-2018, 08:20 AM   #19
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Not true. If you have other income, like a W2 from a regular job, a properly setup boat business can run at a loss and those losses serve to reduce your taxes from the other income. People do this with airplanes as well. I won’t agree that it would ever pay for itself, but it can provide a great deal of help. It worked for me, and has for many others.
No, no, no and no. You can't legally use losses from hobbies to offset losses from earnings and businesses and if the boat business is shown not to be a true business, but a hobby, then all benefits will be lost and prior taken reversed. That's the risk. You might get by with it. Now if it's a legitimate business, which I would think yours was, then you can use the losses to offset. And, it can be a legitimate business and lose money every year if you can prove it's sole purpose is to make money.

If a boat business always loses money and you use the boat yourself much of the time, then that's a hobby. The purpose of the enterprise isn't to make money, it's to support your boating hobby. Same as airplanes. Gambling was mentioned earlier but it's got even more rigid rules. Losses from gambling can only be used to offset profits from gambling.

Now, there's an added danger on a scheme such as the entity "Business Yacht Ownership." That is once it comes tumbling down on one boater, it will on all 800 participating. Ask Ernst and Young about the tax shelters they were promoting in the late 90's. As KPMG about their shelters in the 2000's.

Now, interestingly, a few companies like Compaq and UPS have won major tax shelter cases against the IRS and proved there were other benefits to their shelters, not just taxes. However, most people do not have the resources to fight the IRS to the Supreme Court as they both did, nor the arguments they had.
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Old 07-28-2018, 02:17 PM   #20
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I never referred to a Hobby. Hobbies don’t qualify. I said a “properly setup boat business”. It’s very difficult to follow the rules as a legitimate profit-motivated business, but it can be done. But I will stress also again, that no one should expect a low-cost boat ownership, or anything near that. The tax advantage can help, but it’s no free ride. And for 3 years in charter I never laid my head on my pillow, even one night, when I wasn’t worrying about the boat...
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